VanEck Research
May 2017
Views on the 2017 Spring International Monetary Fund (IMF) Meeting
Eric Fine, Portfolio Manager, Emerging Markets Fixed Income
David Austerweil, Deputy Portfolio Manager, Emerging Markets Fixed Income
Investors’ Perspective
excessively adverse asset price outcomes will be reversed. In
Investors are bullish. Normally, this would be a negative on
other words, the central banks are co-opted, trapped, and no
the margin. However, inflows are set for a near record, and
longer independent. They, however, do not think they are. So
positioning in portfolios is not as aggressive as where views are
attempts to exit the trap may occur, but they will be reversed.
going. This positioning favors local currency and high yielders –
We think investors will stop worrying about what happens
otherwise known as Latin America and parts of Africa, together
when rates rise and start worrying about what happens
with Russia (local currency), South Africa (local currency), and
if rates never really rise. As they do start worrying, it will
Turkey (local currency, in theory). (However, we think one should
become clear that the end of the party will be the barn-buster
avoid the country and look elsewhere for market beta).
of all barn-busters before the cops get called. And the cops
will be from a new sheriff’s department that is “populist” – to
In the bull case of investors for emerging markets, China did
use the over and misused term favored by policy elites.
not figure. Now it will. Investors went in thinking that China
was a neutral factor that may eventually cause some accident.
Emerging Markets Economies
Investors left thinking it will be a positive factor (though still one
•Russia was universally praised. However, many did so
that may eventually cause some accident). China presentations
reluctantly, as in: “Gee, they really are as great policy-wise as
and officials were fantastic. (Though their quality is not new to
I’ve heard!” While Russia positioning is high, it is, perhaps,
those who travel to China, they are new to presenting at the
not so relative to a rethink that it involves putting Russia into a
IMF, which is part of their new communications push. Currently,
category of countries with more permanently good policy.
they also have an easier story to tell.)
•Mexico was impressive, but that is almost always the case with
Developed Markets/Global Macro
its policymakers. Moreover, the central bank was basically
•In our opinion, Europe was pretty bad. It has not solved its
saying it wanted the currency stronger, to the extent that
underlying problems. The political pressures will be relentless
any central bank can say that. Growth is looking better than
and do not simply end with a Dutch or French election.
expected, as are tax revenues for the first quarter of the year.
The authorities are up to neither the policy nor the crisis
management job. There is little political capital to invest in
•Brazil was mixed. Some meetings were good, while others
serious solutions. Nonetheless, growth is okay and the French
were not. A big risk would be the government’s inability to
election will be a big relief (many were hedged for an adverse
get enough votes to pass social security reform. We’ll be
outcome). Over time, however, we believe such “victories”
following that closely. No real change to our Brazil view so
will deepen the complacency and inadequacy of political
far. Real rates are high, the central bank is more independent,
authorities, rather than be used as an opportunity to reform.
inflation and inflation expectations are very low, the external
accounts have improved, and the government is addressing
•Global central bank policy, led by the U.S. Federal Reserve’s
quantitative easing experiments, is here to stay, even if
the key concern of a deteriorating debt dynamic (the extent
and duration of which is the subject of current debate).
the central banks think they can exit it. Any exit that has
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May 2017
•Argentina is okay. The end of capital controls has generated
•On South Africa, virtually no one was negative after the meetings,
significant momentum, even if the fiscal situation is disappointing.
but they went into the meetings very negative. Probably a win, and
Our biggest takeaway is how so many investors are only now (as
certainly not disappointing for them. We need to compare and read
in the past year) looking at Argentina positively (we’ve had a big
notes more.
overweight for five years), pointing to further increases in exposure.
Officials presented very well, noting the more credible fiscal
consolidation and two new structural reforms: a fiscal responsibility
•Chile, Brazil, and Colombia (less so) are cutting rates. Mexico has
already built in a lot of hikes. Nothing new, just confirmations.
law that could pass Congress this fall and cap spending in real terms
at zero (à la Brazil), and a pension reform (though one that would
not become law until after another presidential election).
•Some good peripheral stories, such as Angola (we really like it) and
Mongolia (we used to really like it, but the “good story” is largely
priced in by now). Uruguay is getting some attention from some
•Turkey was hotly debated, with many of my experienced friends
loving it and some hating it (we don’t like it). The bullish view is that
big guys. (Thanks to us!) Zambia was disappointing and we are
becoming more concerned about it.
the central bank will cut rates, making duration a good trade. And,
inflation will decline because the currency will rally because people
Concluding Remark
think the central bank will cut rates: it is a bit tautological. Mehmet
Investors continued to make jokes about President Trump and were
Simsek presented, but many don’t know he is irrelevant as a policy
mildly negative about prospects for tax reform. Given their track
maker and just gets trotted out to impress people like us. We see low
record on him, this made me more bullish on such prospects. Mexico
real rates, inflation that is not yet set to decline, and policy that is
and China trade tensions will probably be less bad than many expect.
becoming co-opted (à la Brazil under former president Rousseff).
Still, many seemed to think the election hadn’t happened and few
Clinton supporters were thinking about what lessons could be learned,
other than that Russia hacked the election, or Bernie did, or Comey
did… anything other than a deep analysis.
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